SHIFT : Mastering Short Sales KW170

Presenter

• Barbara Horan

• • Temecula, CA

• • Agent, Short Sale Expert

Mastering Short Sales

• Main Ideas

• Foreclosure: Origin of Short Sales

• The Win-Win Solution

• Sources of Business

• Steps to a Short Sale

• Short Sale Math

• After the Short Sale

• Are You Able, Ready, and Willing?

• • A copy of this presentation is available for download at www.kellerwilliamsuniversity.com

Foreclosure: Origin of Short Sales

• The Foreclosure Process

• • Preforeclosure Short Sales

• • Public Auction Foreclosures

• • Real Estate Owned (REO) Property

Foreclosure: Origin of Short Sales (continued) Phase 1: Preforeclosure Short Sales Phase 2: Public Auction Foreclosures Phase 3: Postforeclosure REOs 1. Homeowner misses loan payment . 30 60 90 120 150 180 210 240 270 300 330 360 390 days 2. Late charges begin accruing. 4. Notice of Intent to Foreclose publicized. 5. Auction 6. Redemption Period 7. REO 3. Lender sends Notice of Default. 0

Foreclosure: Origin of Short Sales (continued)

• Definition of Short Sale

• • Sale for less than amount owed, with lender accepting proceeds as payment in full

• • Preforeclosure phase on chart

Foreclosure: Origin of Short Sales (continued)

• Why Properties Go into Foreclosure

• • Subprime loans

• • Unable to refinance

• • Zero-down loans

• • Loss of income

• • Unexpected events

• • Market shifts

Foreclosure: Origin of Short Sales (continued)

• Options Before Short Sale

• • Forbearance

• • Mortgage modification

• • Refinance with an FHA-backed loan

Advise the homeowner to contact their lender immediately.

The Win-Win Solution

• Truth

A short sale can be a win-win for the agent , the homeowner facing foreclosure, and the lender .

Sources of Business

• Your Solutions-Based Unique Selling Proposition (USP)

• Notice of Default Lists

• Public Notices of Auction

• FSBOs

• Lenders

• Listing Appointments

Sources of Business (continued)

• Qualifying Short Sale Candidates

• Market pricing must be less than the loan amount.

• The homeowner must be financially insolvent.

• The homeowner must demonstrate a hardship.

• The homeowner must be cooperative.

Sources of Business (continued)

• Additional Considerations

• Bankruptcy

• Private Mortgage Insurance (PMI)

• Imminent Foreclosure Date

Steps to a Short Sale The Eight Steps to a Short Sale Close the Deal Step 8 Negotiate the Deal Step 7 Submit a Proposal Step 6 Obtain an Offer Step 5 List the Home Step 4 Develop the Proposal Step 3 Open Communication Step 2 Gather Information Step 1

Steps to a Short Sale (continued)

• The selling and communication cycle in a short sale is long and tenuous. You cannot wing it. But if you stay with it, if you nurture this skill set, you can become an Opportunity Warrior in a challenging market.

• - Dave Jenks

Steps to a Short Sale (continued)

• Step 1: Gather Information

• • Bank statements, W2s, paycheck stubs, tax returns

• • Property tax bill

• • Monthly bills

• • Check for additional liens

• • Hardship letter and documentation

• • Complete loan information

Short Sale Checklist Information Gathering

Steps to a Short Sale (continued)

• Step 2: Open Communication

• • Obtain and submit authorization

• • Initiate communication with lender

• • • Short sale application packet

• • • Name and direct number of decision maker in Loss Mitigation Department

• • • Information about their policies

• • Systematize communication

Short Sale Contact Record

Steps to a Short Sale (continued)

• Step 3: Develop the Proposal

• • Proof of financial insolvencyforeclosure is imminent

• • Documentation of the hardship

• • Business case for accepting a reduced price

Short Sale Proposal Checklist

Steps to a Short Sale (continued)

• Step 4: List the Home

• • Develop a pricing strategy

• • Educate the seller

• • Considerations

• • • List home as is

• • • Enter Short Sale in the agent remarks on the MLS (if optional)

• • • Indicate variable commission split with buyer on the MLS

Steps to a Short Sale (continued)

• Step 5: Obtain an Offer

• • Determine lenders requirements

• • Ask potential buyers for their best offers

• • Give the lender the best offer

• • Seller should approve offer

• • Lender will order a brokers price opinion (BPO)

• • Educate the buyer

Steps to a Short Sale (continued)

• Step 6: Submit a Proposal

• • Add the offer to the proposal

• • • Create a proposal for each loan

• • Send it by registered mail to all appropriate contacts

• • Follow up

• • Be persistent

Steps to a Short Sale (continued)

• Step 7: Negotiate the Deal

• • Balance negotiations between lenders if more than one lender

• • Create systems for communication

• • Consider leveraging help

• • • Services are available to negotiate

Short Sale Contact Record

Steps to a Short Sale (continued)

• Step 8: Close the Deal

• • Complete the deal within thirty days of lender acceptance

• • Prepareno surprises at closing

• • • Seller cannot bring cash to the closing

• • • Alert the closing company

• • Time is a factor

• • • Lenders will limit time to complete a short saleoften in the range of 60 120 days (90 days for FHA)

Short Sale Math

• Critical Numbers in a Short Sale

• • Initial list price to bank

• • Initial list price to MLS (may or may not be the same)

• • Net proceeds required by lender

• • Bottom-line amount that will cover banks net, plus commissions

• • and seller closing costs

Short Sale Math (continued)

• Calculation Steps

• • Establish net dollars to bank

• • • Different lender thresholds for net (FHA, VA, Conventional)

• • Factor in commissions and closing costs

• • Factor in any other fees or costs

• • Leave room for negotiation

Short Sale Math (continued)

• Math examplecollect all relevant data

Miscellaneous Closing Costs Commissions HOA Dues Liens or Judgments Taxes Owed Market Value Debt Loan Type

Short Sale Math (continued)

• Math examplegather all raw data

• $200,000 current market value

• $210,000 debt owed

• $170,000 lenders minimum net (conventional loan)85% of market value

• $3,000 back real estate taxes due

• 6% real estate commissions

• 2% seller closing costs

• 3% negotiation buffer

• $0 dues and miscellaneous expenses

• continued

Short Sale Math (continued)

• Math examplegross up, working backward from lender minimum net ($170,000)

• $170,000 .92 (8% comm. & closing costs) = $184,800

• $184,800 + 3,000 taxes past due = $187,000

• $187,800 .97 (3% negotiation buffer) = $193,600

• • $193,600 is minimum list price to cover costs

• • Consider comps

• • Set list price

Short Sale Math (continued)

• Special Exception

• • In short sales of properties with FHA loans, FHA offers sellers up to $1,000 cash incentive if sold in under 90 days.

• • This cash can be distributed by lender to seller as proceeds of closing.

Short Sale Math (continued)

• Other Factors to Consider

• • Sellers must disclose other assets to lender, like 401(k), IRA, etc.

• • There are tax consequences for sellers in a short sale

• • Federal law waives some taxes in mortgage debt forgiveness

• • (counsel: call tax acct. or IRS)

After the Short Sale

• Win-Win Benefits to Your Business

• • Ask for a testimonial

• • Put seller in your Met Database

• • Put the seller on 33 Touch

Ready, Able, and Willing?

• Stop and Think About It

• • How will your business be impacted by a decision to pursue short sales?

• • What systems, tools, and people can you leverage?

• • What resources will you need;

• • what will you need to know?

Ideas into Action

• • Know the short sale process.

• • Understand the requirements of you and your business.

• • Make a conscious commitment.

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